Toyota in France

Toyota in France

Background

In late 1996, Toyota began to look at the whole of western Europe for a site for its ultra-modern plant. Belgium, the Czech Republic, France, Germany, Poland and the UK all seemed to be the most promising investment recipient, but the list was quickly left a head-to-head battle between Europe's oldest foreign investment rivals - France and the United Kingdom. At first, the UK seemed the obvious choice. Toyota had its only European car assembly plant at Burnaston, in the UK's Midlands, where a skilled workforce and well-established automotive infrastructure and cluster of related firms are available. However, at the end of January, company president Hiroshi Okuda voiced doubts about investing in the UK because of its hesitation to fully participate in the European monetary system. In 1997, Toyota finally announced plans to build a $660 million car plant in Valenciennes, 60 km from Lille, France.

Evaluation

1. The reasons for French government to invite Toyota to invest in France are attributed to the benefits of foreign direct investment (FDI) to France as the host country.

a. Resource-transfer effect

Toyota can make positive contribution to French economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost FrenchЃfs economic growth rate.

- Capital

Toyota, as a multinational enterprise (MNE), because of its large size, reputation, and financial strength, has access to financial resources which may not be available for French local firms like Renault or Peugeot-Citroen. These financial resources can be originated from ToyotaЃfs internally-generated cash, or from capital markets. As a reputable and financially strong company, it may be easier for Toyota to have access to such resources than French local companies do.

- Technology

Technology plays important role in economic growth of a country, since it can stimulate economic development and industrialization. Technology can be incorporated into both production process and the product itself. In case of Toyota, the French government may be benefited from its advanced technology which it passed to its French employees, therefore improves the employeesЃf skill without additional investment to develop their own indigenous product and process technology. Since Toyota also invests significant amount of capital in R&D in French, this company is not only transferring technology to the country, but it may also upgrade existing technology or creating new technology there.

- Management

Foreign management skills acquired through FDI can produce important benefit for the host country, since it can help improving the efficiency of operation in the host country. Toyota is a well-known company in term of managerial capability; thus French employees working for Toyota may gain benefit from their daily works activity. The benefits may be greater if special trainings are provided for French employees prepared to occupy specific position within the Toyota subsidiary in French (financial, managerial, or technical posts). Superior management skill of Toyota may also influence and stimulate local suppliers to improve their own management skill.

b. Employment effect

Toyota brought with its investment the need for employment. The establishment of Toyota subsidiary in Valenciennes opened new job opportunities. The plant, opened in 2001, created around 2,000 start-up jobs, with an annual capacity of 100,000 vehicles. A second phase may double the capacity by 2005.

c. Balance-of-Payment effect

French balance of payment can benefit from ToyotaЃfs investment in France in three ways:

- When Toyota established its subsidiary in France, the capital account of France benefits from the initial capital inflow (however, this is just a one-time-only effect).

- If ToyotaЃfs cars substitute for imports of other countriesЃf cars, the current account of FrenchЃfs balance of payment is increasing.

- When Toyota exports the cars to other countries from France, again the French balance of payment will benefit from this export.

2. The points Toyota considered before investing in France are geographical location, good infrastructure, better access to French market, and availability of good-quality labor.

a. Geographical location

Toyota wanted to be close enough to ship engines over from its UK plant cheaply. Northwest